Crypto-KYC in Canada

Crypto-KYC in Canada

Introduction

One of the key features of the “be your own bank” movement is the anonymity with which crypto-funds can be transferred. There are merited concerns that this aspect of cryptocurrency enables money laundering and terrorist financing.

The legislation in Canada dealing with money laundering and terrorist financing is:

The present blog post is concerned with “crypto-KYC”. This is our term for the KYC requirements imposed on persons and businesses that are MSBs as a result of "dealing in virtual currencies".

What are the Main Crypto-KYC Requirements?

MSBs must ascertain the identity of every person who seeks to: (1) transact $1,000 or more, or (2) issue/redeem a negotiable instrument (e.g. money order or cashier’s cheque) for $3,000 or more. The latter rule applies as well to foreign currency transactions. (See PCMLTFR, ss.59 to 59.01.) (Note that all dollar amounts refer to CAD after conversion, pursuant to PMCLTFR, s.2(b).)

For any transaction amounting to $10,000 or more within a 24-hour period, unless such transaction involves cash paid by a financial entity or public body, the relevant parties to the transaction must be identified (PCMLTFR, ss.53, 29, 3, 1 “large cash transaction record”).

Moreover, records must be kept of employees who are authorized to transact under the following types of agreements (PCMLTFR, s.32):

More Crypto-KYC Regulations?

The Governor in Council has jurisdiction to regulate in respect of: (1) virtual currency dealings, and (2) verification of identities. (See PCMLTFA, ss.71(1)(a) and (c), 6.1, 5.)

Given the increasing KYC concerns presented by anonymous cryptocurrency activity, further KYC requirements specific to "businesses dealing in virtual currencies" should be expected.

We recommend that you consult a blockchain / cryptocurrency lawyer for a KYC compliance plan that: (1) anticipates upcoming regulations and their effect on your particular business model, and (2) supports defences against allegations of money laundering and terrorist financing. We service clients in this area further to our KYC service offering.

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